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March 14, 2005

US Senate Foreign Relations Committee Chairman Richard Lugar, persuaded that multilateral financial institutions must do more to deal with corruption, will soon propose reforms to encourage increased bank accountability, Reuters reports a senior aide said on Wednesday.

One recommendation under consideration would urge the World Bank and related global institutions to require mandatory financial disclosure for all officials and employees whose duties and responsibilities involve them in the contracting or procurement process. The reform package, which is still evolving, would be introduced in a few weeks along with legislation to authorize more than $3 billion in new financing for three of the banks – the World Bank, the Asian Development Bank and the African Development Bank, according to Keith Luse, Lugar’s senior Asia adviser and director of the committee’s bank probe.

The reforms grow out of Lugar’s investigation into allegations of corruption in projects funded by the multilateral banks. Begun more than one year ago, the probe is expected to last through 2005 and possibly even longer. “The banks are at varying levels in their commitment and action to combat corruption,” Luse said in an interview.

“The World Bank has demonstrated the most vigorous leadership in reform efforts,” he said. But he declined to assess the efforts of the other banks, which also include the European Bank for Reconstruction and Development and the Inter-American Development Bank. “It’s clear to Chairman Lugar that the banks have taken some steps to combat corruption, but more clearly needs to be done,” Luse said. But he added: “Unfortunately, the overall anti-corruption effort will be ongoing and long term. Part of the challenge is the culture of corruption which exists not only within countries but certainly in pockets of the banks.”

Lugar has been examining the banks’ anti-corruption strategies through a combination of public hearings, private meetings, written interrogatories and visits by staff aides to bank development projects overseas. Testimony has come from bank employees, “whistle-blowers,” nongovernmental organizations and academics. The committee plans to hold another public hearing – featuring the U.S. executive directors to the Asian Development Bank, the African Development Bank and the European Bank for Reconstruction and Development – sometime in April.

Projects under review have included the Yacyreta hydroelectric dam on the Argentine-Paraguay border, the Highlands Water Project in the land-locked African nation of Lesotho, and projects in Cambodia. Aides said the committee’s probe has prompted activity in other countries where additional inquiries are underway on a wide range of projects. One example is the Italian parliament which is now looking at reforms it might undertake in dealings with the banks. World Bank investigators said last month that they had penalized more than 300 firms and individuals for fraud and corruption since 1999 but did not know the full extent of the problem in bank-financed projects.

Under Lugar’s authorizing legislation, the World Bank is slated to receive $2.85 billion over the next three years; the African Development Bank, $407 million over three years; and the Asian Development Bank, $461 million over four years.